Today’s Airline News: Pilot Crisis, Carbon Backdown, Emirates Rises

Welcome to the world of the airline industry: falling profits and dysfunction in the old establishment, blue skies, growth and healthy income for the emerging competitors.

A flock of stories illustrating the industry’s convulsions are out today. In no specific order:

The U.S. is facing its most serious pilot shortage since the 1960s, the WSJ reports, for reasons that read like a shopping list of what ails American airlines, and many of the country’s struggling industries. Stricter regulations are making it harder to hire, corporate penny-pinching has made pilots over-stressed and underpaid, and overseas competitors pay better:

Federal mandates taking effect next summer will require all newly hired pilots to have at least 1,500 hours of prior flight experience—six times the current minimum—raising the cost and time to train new fliers in an era when pay cuts and more-demanding schedules already have made the profession less attractive. Meanwhile, thousands of senior pilots at major airlines soon will start hitting the mandatory retirement age of 65.

Another federal safety rule, to take effect in early 2014, also will squeeze the supply, by giving pilots more daily rest time. This change is expected to force passenger airlines to increase their pilot ranks by at least 5%. Adding to the problem is a small but steady stream of U.S. pilots moving to overseas carriers, many of which already face an acute shortage of aviators and pay handsomely to land well-trained U.S. captains.

And while the crisis has been approaching in slow-motion for years, nobody has done much to deal with it, as the numbers show. In the coming decade the industry will need to hire up to 65,000 pilots to replace those retiring and keep up with growth, but less than 40,000 new pilots were trained up in the last eight years, and there is no sign of a boom in new pilots being trained.

On the other side of the Atlantic, the Scandinavian airline SAS, which has been losing money consistently for the last five years, is preparing one final roll of the dice, laying out a restructuring plan it says is its last chance to survive, the FT reports:

The number of workers at SAS would fall from 15,000 to 9,000 under the plan, with 800 administrative staff losing their job and several units being sold, including its ground handling operations and its Widerøe regional airline in Norway.

Pay would be cut by up to 15 per cent, pensions would be moved from defined benefit to defined contribution in an attempt to reduce obligations by more than a half, or SKr18bn, and working conditions would be standardised.

SAS has been hit hardest by the low-cost carriers that have taken over much of the short-haul market in Europe, and most particularly the Irish discount operator Ryanair. To say Ryanair is merciless in its approach to cost cutting would be an understatement — its CEO said last week he wants to introduce a new class of cheaper tickets where customers stand at the back of the plane — and the company is on the acquisition path, trying to take over Ireland’s established flag carrier Aer Lingus, despite skepticism from EU regulators.

Those regulators also gave up today on one of their most controversial policies — a demand that foreign airlines flying to or from European airports must pay an EU levy on their carbon emissions. That policy was strongly opposed by foreign governments, who said it amounted to an extra-territorial tax on their companies. That argument appears to have won for the time being, with the EU saying it will now give the international airline industry more time to reach a global agreement on emissions pricing.

But airlines flying within the EU will still be subject to the emissions pricing laws, adding yet another small disadvantage to the continent’s operators compared to their international peers.

One of those peers in particular will be seeing no carbon pricing problems in its home market, given that it is based in the country with the world’s highest per-capita carbon emissions and what could be described as a relaxed approach to environmental issues. While companies like Ryanair squeeze the short-haul business, Dubai’s Emirates Airline has been siphoning away the lucrative long-haul traffic between Europe and Asia just as fast.

Emirates, the world’s biggest operator of the Airbus A380 super-jumbo, released first half results today, with net profit up 68%. The results came after the company boosted its fleet of wide-bodied aircraft and added 15 new destinations, from Erbil in northern Iraq to Washington, D.C.

What next for Emirates? If Australian regulators give it the go-ahead, a partnership with Qantas will see the airline feeding Australian passengers through its hub in Dubai and onward to the Emirates network overseas, tapping into one of the industry’s most lucrative and charmingly-named markets: the Kangaroo Route.

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